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The parent company of Silvergate Bank, Silvergate Capital Corporation, has disclosed plans to halt operations and "voluntarily liquidate" the bank amid the Silvergate issue. The crypto-friendly bank had previously shut down its network for bitcoin payments.
Silvergate announced in a press release on March 8, 2023, that it would shut down operations and liquidate its bank, claiming that this was the best course of action. The lender with a focus on cryptocurrencies added that the bank will be shut down and liquidated following the necessary regulatory procedures. In addition, Silvergate said that although the business is going through the wind-down process, deposit-related services would still be available.
The most recent event occurs not long after it was reported that Silvergate was in discussions about saving the bank and averting bankruptcy with the US Federal Deposit Insurance Commission (FDIC). The Silvergate Exchange Network (SEN), a payments network that allowed round-the-clock instantaneous transfers between institutional investors and cryptocurrency clients, was one of Silvergate's key offerings. On March 3, Silvergate announced that it would end this service.
Binance and Coinbase cut ties
With FTX's demise, the California-based lender has been fighting to survive. The company, Silvergate, said that it would postpone filing its Form 10-K, citing regulatory scrutiny and investigations as some of the reasons. The corporation had further losses in January and February 2023 after reporting a loss of around $1 billion in Q4 2022.
When some of the bank's well-known cryptocurrency clients, including Coinbase, Circle, Gemini, and Paxos, withdrew as a precaution from the ailing lender, Silvergate's problems grew worse. Coinbase and Binance have stressed zero exposure to Silvergate in light of the company's most recent declaration and added that users' funds remain secure.
What happened? Crypto community reacts
The demise of the cryptocurrency-friendly bank has prompted a discourse about who was responsible for the fall of the first domino and where cryptocurrency businesses may go for their banking obligations.
The decision to voluntarily wind down Silvergate Bank has inspired several individuals to share their perspectives on the factors that led to the bank's difficulties as well as the larger ramifications of the collapse of a bank that was supportive of cryptocurrency.
Several companies have taken advantage of the chance offered by Silvergate's most recent announcement to reiterate that they have never had and do not now have any ties with the corporation in the issue.
Customers have been reassured by the Chief Executive Officer of Binance, Changpeng Zhao, through Twitter that the cryptocurrency exchange does not have any funds stored with Silvergate.
Meanwhile, Nic Carter, co-founder of venture firm Castle Island and crypto intelligence firm Coin Metrics, suggested that it was the authority that "hastened the collapse" of Silvergate by deploying investigations and legal attacks on it. Nic Carter made this recommendation based on his belief that it was the authority that "hastened the collapse" of Silvergate.
"They're the arsonist and the firefighter all wrapped into one," it says in the writing he did.
Ram Ahluwalia, the Chief Executive Officer of Lumida, tweeted his agreement with this point of view, stating that the senator's letter increased public mistrust in Silvergate. He went on to say that "Silvergate was denied due process."
As Carter stated in a previous blog post titled "Operation Choke Point 2.0," he claims that he has information that the United States government is using the banking industry to organise a complex and all-encompassing operation against the cryptocurrency economy. According to him, this activity is taking place.
Reactions from government officials on the collapse
At the moment, several lawmakers in the United States have taken advantage of the chance to provide their observations on the state of the cryptocurrency industry at the moment. They have referred to it as a sector that "spreads risk across the whole financial system" as being dangerous and volatile.
Elizabeth Warren, a senator from Massachusetts, responded to the closure of Silvergate as "disappointing, but predictable," and she asked authorities to "stand up against crypto danger." Silvergate was a cryptocurrency exchange that allowed users to buy and sell bitcoins.
Senator Sherrod Brown also chimed in, reiterating his desire to "create robust protections for our financial system against the hazards of cryptocurrencies" and expressing his concern that financial institutions that become engaged with cryptocurrencies pose a threat to the larger financial system.
The senators' views have been greeted with pushback from members of the community who find them offensive. Since that Silvergate possessed a substantially more meaningful number of deposits in demand than cash on hand, there are members of the community who are under the impression that the problem was not tied to cryptocurrencies and that fractional-reserve banking was to blame for the predicament.
The collapse of Silvergate may be beneficial to the bitcoin industry. But, if the predicted changes to tax legislation are adopted, it might speed up the process by which crypto businesses leave the United States.